Picture if you will, the following encounter:
You are walking down the street when you see an old, familiar friend. He walks up to you, and you embrace. It’s a long embrace in which he pats you on the back, grabs you by the upper arms, looks you in the face, smiles and says, “It’s been too long. You look great. How’ve you been?”
You’ve been OK, you say, although times have been a little tough lately. In fact, you say, “I was just on my way over to the courthouse to pay my taxes.”
“Ouch,” he says.
“Yeah, I was out of work for a while last spring, so it’s been a little tight, but I think I can cover it.”
He says, “Say, I’m doing OK. Here, let me give you $500. I’ve got enough. I know, I know, you don’t want to owe me anything, and you won’t.”
He takes the $500 and sticks it in your shirt pocket. It feels strange. You’re uncomfortable about it, but you think to yourself, “Hey, I’m not going to turn down free money.”
You mumble, “Thanks,” and proceed on your way over to the courthouse. You get there, and you take out your wallet to pay your taxes. Suddenly, you realize that some of the $1,500 or $2,000 or whatever you brought with you is missing. You think, “Boy, I’m glad I ran into my old friend.” You reach into your shirt pocket and pull out the $500.
You count the money your friend gave you and add it to the money in your wallet, and suddenly you realize you’re $250 short. You tell the clerk to hold on a second, step away from the counter and recount it. Yep, you’re short $250.
How did that happen? You were sure you had enough. You think back over your trip to the courthouse. You’d stopped at the bank, made a withdrawal and counted it carefully after the teller gave it to you. Then you came here, and the only stop you made was when you ran into your old friend.
And then it hits you. The only possible explanation is that somehow your old friend, when he was slapping you on the back, managed to pick your pocket in a way that you didn’t notice. He even put the wallet back. He was so clever that he made you think he was the most generous guy on the planet, giving you $500. It was then you realized where the money came from. He took $750 out of your wallet and handed you $500 of it, but kept $250.
And who played this scam on you? Your old friend has a name — Gov. Mark Dayton.
Dayton claims that his new budget proposal has “no games and gimmicks.” But he is proposing to expand the sales tax to collect an extra $2.1 billion, so that, in part, he can use $1.4 billion of that new revenue to send you a property tax rebate.
Much of that sales tax expansion comes from adding sales tax on business services such as attorney’s fees, accounting and advertising.
Think about who pays that tax. Businesses? No, businesses collect the tax. In some cases, under Dayton’s proposal, they collect the tax from other businesses.
But for those businesses, the payment of the tax has to be covered in some way through sales. Some will find that they can’t pass on the tax to their customers. Customers with options to do business in other states will walk away if their vendors add on the tax.
Other customers are captive. Suppose you are a single mom with a couple kids and a deadbeat ex-spouse who isn’t making his Minnesota court-ordered payments. You have to hire an attorney to get him to pay up. Dayton will charge you a sales tax on top of the lawyer’s fee, no matter how impoverished you are.
In the same way, you hire an accountant to save you money by doing your taxes. But the governor now wants you to pay an extra 5.5 percent on your accountant’s fee. The only alternative is to do the taxes yourself, but that may be even more expensive.
Or take advertising. Now, if you qualify for a free classified ad in your community newspaper, it might not cost you anything, but if you own a small business on Main Street and need more space, you will be paying an additional 5.5 percent on anything you do to let the public know about your products and services.
In some cases, this will require you to raise your prices to cover the extra cost. In other cases, you will cut costs elsewhere, including foregoing a raise for your hard-working employees or cutting your ad budget. The latter may result in fewer customers, creating a downward spiral. If you are on shaky ground financially, it might be the last straw.
Main Street stores selling clothing will now start charging tax for any clothing item over $100. One wag suggested that shoe stores will have to start selling the left shoe and the right shoe separately to avoid the tax.
The governor’s first response to any criticism of his plan is to ask for something better.
I’m among those who believe the governor’s budget is built on a false premise that the state has to raise tax rates. I believe the existing rates are sufficient.
At the same time, the voters spoke clearly last November that they want the party of government, the DFL, to run this state for the next two years. If it wants to increase state spending, then be forthright about it. Use the collection mechanism already in place — payroll withholding — and raise everybody’s income tax. Show people on their paychecks what you are taking out, tell them why you need the money, and let them decide in November 2014 if you’ve been good stewards.
In short, governor, live up to your pledge of “no games and gimmicks.”
Tom West is a general manager with ECM Publishers. Contact him at 320-352-6569 or email [email protected]